T-Mobile eyes hotspots and Sprint femtocells

The large cellcos continue to wrestle with the thorny issue of how to turn the mobile internet trend to their advantage, even as it chips away at their walled gardens and therefore their margins.

The US carriers are currently leading the way in creative thinking, even if the Korean and Japanese cellcos have the most receptive consumer audiences, and between them Alltel, Sprint Nextel and T-Mobile represent the main approaches to mobile internet models.

Pricing, content, user interfaces and devices, and how to keep customers within the operator environment - all these are critical to success, and the US second rung of cellcos (after AT&T and Verizon) are pushing most of the hot buttons. Something that cannot yet be said for many of their European counterparts, which, with notable exceptions like recent open internet convert 3, are still clinging hard to their old closed business models.

One of the most urgent decisions, on both sides of the Atlantic, will be how to bring the trend towards flat rate, use-anywhere internet and VoIP services under operator control, and to outdo the wireless ISPs in terms of portability and coverage. Here we are seeing Sprint and TMobile taking different routes, the former aiming to deliver a full mobile internet and converged experience on its own wireless networks; the latter looking to exploit unlicensed spectrum by building on its strengths in Wi-Fi, an option more commonly adopted by wireline players. Both approaches will only work with creative pricing and marketing strategies, and in this respect, Alltel is leading the way.

One of the ways that European operators have been rising to the challenge of the internet has been adoption of the 'home zone' approach, which offers users a low cost, usually flat rate for voice and even data, within a certain range of their home or office. This can be achieved by handing off calls to Wi-Fi within the zone, as with BT's Fusion, or by creating a small 3G or GSM cell using a femtocell device. The home zone tariffs serve to increase customer loyalty and reduce the appeal of VoIP providers, and when 3G is used, take advantage of that technology's lower cost of delivery for voice.

The latest move comes from O2, which has brought such a scheme to its native UK under the 'Favourite Place' pay-and-go tariff. Customers can make 500 minutes per month of free calls to UK landlines and other O2 cellphones from within their home or office postcode. O2 has a similar scheme, Genion, in Germany, where high telephone bills have stimulated a particularly aggressive move towards VoIP, and a fightback by the cellcos in the shape of home zones.

It now seems likely that Vodafone and T-Mobile will also import their German offerings; Vodafone ZuHause and T-Mobile@home, to the UK to respond to O2's move. Vodafone would do well to bundle this with its existing AtHome DSL tariff to accelerate its move towards fixed/mobile convergence in its home market.

However, they will need to avoid repeating the crucial mistake of the German experiment - making the zones so large that the cellco is often left with very few minutes at the old premium rate (a problem O2 may also encounter with its postcode scheme. The use of postcode appears to make things simple for consumers, but in fact, the actual service relies on the coverage of the local cells site to define this zone). O2's service will really take off when it implements, as it has already hinted it will do in 2008, indoor femtocells in low power spectrum, to create tightly defined, short range, DSL backhauled home zones.

Another option in use by some operators is using location-based software, from companies like Seeker Wireless, which is installed on the user's SIM card to identify when they are within the predefined zone. Whichever the technology used, such techniques better define the location and so reduce revenue leakage from calls made within the home macrocell, but outside the smaller home zone.

The need for new tariff structures and better indoor penetration to support quad play applications is driving the current intense interest in femtocells (miniaturized indoor base stations about the size and range of a Wi-Fi access point, but integrated with the carrier network and under the carrier's control).

Majors like Ericsson are starting to enter the fray, indicating that the tier one carriers are also starting to show a real commercial interest. Wi-Fi/cellular integration using techniques like UMA (Unlicensed Mobile Access) has dominated indoor/outdoor convergence efforts in the past two years, and will remain popular with operators like T-Mobile that have heavy investment in Wi-Fi. But the superior control that operators gain from femtocells is now attracting many big names towards trials, especially as this approach promises better evolution to IMS and all-IP, plus the usual benefits of indoor penetration and offloading of traffic from the main network. Telefónica O2 will be among the pioneers, but as so often, the industry, particularly its CDMA and WiMAX portions, is looking to Sprint Nextel for a lead in a new technology.

Sprint recently issued a request for proposals for 'low cost internet base stations', which fleshes out its earlier general comments about using picocells to improve coverage in office buildings and other complexes. It is essential, if Sprint Nextel's WiMAX-based services are really to be clearly differentiated from those on 3G, that they support strong indoor penetration, and therefore genuine convergence between mobile and home services, going well beyond the cellphone to embrace delivery to set-top boxes and future devices. To achieve this, the operator would need to make a significant investment in microcells and femtocells to make this convergence into a consumer play across its whole proposed coverage area, rather than just a method to improve quality within large buildings such as malls.

It is not clear whether these miniature stations would be specific to the proposed WiMAX network or would also support the CDMA EV-DO system. In the latter case, companies with a CDMA heritage would be hopeful of making the shortlist - Airwalk and Airvana spring to mind among the specialists, and could net a partnership with a larger Sprint supplier without its own femtocell offering. Among the equipment makers currently supporting Sprint's WiMAX and EV-DO build-outs, Nokia plans to use RadioFrame's UMTS product but has not indicated plans for WiMAX femtocells; Alcatel Lucent has been working with ip.access; Nortel has not shown its hand; Motorola has its own product in the shape of the AXPT and is likely to adapt current products for 802.16.

The most hopeful of the majors currently must be Samsung, which recently unveiled its Ubicell in CDMA and UMTS variants, and is said to be working on a WiMAX implementation. Samsung says Sprint is currently trialing UbiCell on its EV-DO network, which could be a blow to RadioFrame, which is an incumbent supplier of indoor/outdoor iDEN base station units at Nextel.

Although its recent expansion into femtocells has focused on GSM, it is also promising a WiMAX product, and will hope to build on its existing contacts within Sprint Nextel. Radioframe talks up several claims that will be relevant to Sprint - the prospect of a $100 price tag, bringing femtocells into line with Wi-Fi access points, and a highly scalable 'collapsed base station architecture' that could potentially support millions of femtocells. This architecture collapses the functions of much of the radio management into RadioFrame's picocell and femtocell base stations at the edge of the network allowing a virtually unlimited number of stations to connect to the core. This is also a concept in advanced development at Alcatel Lucent with their Base Station Router platform, already adopted by Japan's Softbank, which can work with third party femtocells such as those from ip.access.

The prospect of tier one carrier contracts for hundreds of thousands of femtocells in the 2008-2010 period will also lure new chipmakers into the sector. The UK's PicoChip is currently the strongest contender, powering many of the early products, (and with CDMA capability through an alliance with Global Wireless Technologies of New Jersey, but the big names will soon start piling in too.

A possible Sprint deal will pique Qualcomm's interest, especially if it decides on a major CDMA component - the giant has already hinted at plans for a femtocell for CDMA2000 and for multiple radios. RadioFrame is developing its own architecture, OmniFrame, and Texas Instruments' plans are also being closely watched.

While Sprint and O2 wave the flag for femtocells - with AT&T also likely to take this route, having committed to an all-IP convergence strategy in preference to Wi-Fi/UMA - T-Mobile remains determined to leverage its leading position in Wi-Fi hotspots, especially in the US.

Having trialled its Hotspot At Home convergence service in Seattle, it will now take the offering nationwide from later this month. The trial encountered some problems with Wi-Fi/cellular hand-off using UMA, and with battery life, but according to the operator, these have now been addressed. Nokia and Samsung provided handsets for the test phase, and pricing - which may be changed - was $20 a month on top of the current mobile tariff, plus an additional $5 to add further family members.

Having got its hands on 3G spectrum belatedly - in last fall's AWS auction - T-Mobile has had to compensate by building up its hotspot network to support a measure of convergence, and by concentrating on high levels of customer service. As in Europe, it has made a point of arguing that customers want competitive tariffs and high quality of service now, and that for the time being, those are more important than advanced 3G-plus applications.

However, it needs to avoid falling too far behind its larger rivals, and Wi-Fi has proved a useful bridge to future mobile internet services. In particular, T-Mobile USA is likely to take on the landline giants, Verizon and AT&T, by launching a router later this year that will allow ordinary landline phones to be plugged in.

Whatever the delivery network, T-Mobile knows that attractive navigation and pricing will be the key to success in the mobile internet in the first days, and while Sprint plays a longer game with its grand quad play vision, its smaller rival, plus Alltel, are aggressive about scoring more pragmatic points right now.

The Hotspot at Home option will join other elements in this strategy for T-Mobile, notably its "MyFaves" tariff (recently introduced to Europe too), which allows customers to call any five numbers, wireless or landline, for free, and which the cellco says has been adopted more quickly by its customers than any other service it has ever offered.

MyFaves is a strong example of how an operator can attract customers initially with a good pricing offer, and then use that to introduce the consumer to new-style internet services that may, in future, enhance user loyalty and drive additional spending.

MyFaves is important - not so much in its initial format, but for the future it points to. For instance, it features visual icons of the user's address book, which does not make it a true Web 2.0 or social networking tool yet, but points in that direction for the near future.

This is the right order of priorities, in contrast with many of the new breed of youth oriented US MVNOs, such as Helio and Amp'd, which tried to differentiate their initial services on complex content-based services, and forgot to add simple, low rate voice tariffs. Even more aggressive about using attractive tariffs to introduce customers to next generation services is fifth US cellco Alltel, which challenges - and goes beyond - MyFaves with its innovative CellTop mobile internet user interface and content navigation tools, and has a range of strong pricing options.

In the latest in a string of creative tariff enhancements to stimulate mobile internet usage, the carrier has announced a 24-hour 'day pass', which introduces Wi-Fi style ad hoc browsing fees to the mobile network, supporting casual users who are not prepared to commit to a monthly internet contract (yet). The service is powered by Motricity and each day pass costs $1.50.

Alltel also announced that subscribers can now browse for ringback tones, ringtones and wallpapers without incurring charges, whether or not a subscriber has a data plan. Wade McGill, senior VP of product management, hit the nail on the head as to the challenge facing all cellcos - "Alltel continues to offer services that allow customers to easily integrate mobile content into their daily lives," he commented. "Alltel's commitment is to give our customers the ability to control and customize their wireless experience."

This is the lesson all mobile operators need to learn, though only a handful, such as Alltel and 3, are currently showing strong signs of doing so. The others are making important decisions about the technologies and devices that will drive their mobile internet efforts, but they will need to enhance their pricing and marketing techniques to gain any real short term advantage.

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